Overcoming the Regulatory Hurdles

On December 11, 1995, a fire struck textile manufacturer Malden Mills, the single largest employer in Lawrence, Mass. The very next day, Aaron Feuerstein, president and CEO of Malden Mills, began the rebuilding process. In an effort to rebuild smartly, with emphasis on lower energy use and decreased emissions, Malden aggressively pursued various combined heat and power (CHP) systems available on the market and decided to install a 12-MW CHP system using a natural gas-fired combustion turbine.

In the meantime, the state of Massachusetts had just implemented new air pollution standards that made the plan unworkable, even though total emissions for Malden would have been cut in half. In fact, when it was all said and done, it would take Malden six long years before its cogeneration permit would be approved, even with federal government assistance.

Through a Department of Energy (DOE) initiative to double the use of combined heat and power systems in the United States by 2010, the DOE worked closely with state officials and in 1998 reached an informal agreement that designated Malden Mills as a test site for new technology. This allowed a conditional permit to be granted for the cogeneration facility.

Stephen Walso, senior project manager for DOE’s office of power technologies in Chicago, said that while the time it took Malden to get permitted was a problem, Massachusetts is actually one of the more forward-looking states, at least allowing for conditional approval to see if the DOE’s new emerging combustion technology could be considered a best available control technology. Waslo said that because the Massachusetts standard was not performance based, Malden’s original plan would not have met the standard, regardless if they cut total emissions in half.

“In Massachusetts, that was a problem, finding an economical way to tackle the emissions. That’s why DOE stepped in. We helped Malden by transferring our technology to their cogeneration facility, which allowed them to meet the emission requirements in an economical way,” Walso said.

Given the load reduction possible because of exhaust heat providing for water and space heating, it’s probable that total energy savings will approach 20%-25%, which could save Malden as much as $1 million annually.

Regulatory hurdles remain

With energy costs and reliability problems on the minds of companies, despite higher natural gas prices, companies are taking another look at distributed generation (DG) and cogeneration. Though CHP is a path many companies might like to go down, as exemplified by Malden Mills, they might not like what they find when they reach the permitting stage.

Joe Bryson, manager of the new CHP Partnership at the U.S. Environmental Protection Agency (EPA), told E Source that the EPA is moving forward to cut through the red-tape and make changes, but the laws and regulations impacting CHP projects will take time to evolve so that they better recognize the environmental benefits of these projects.

“The challenge lies in part in the way the Clean Air Act is set up and the way states implement their delegated responsibilities,” said Bryson. The New Source Revew provisions significantly raise the bar for any new emissions source, making it more difficult to justify new projects, including installing new and high-efficiency natural gas turbines.

To make CHP work, we have to look at emissions from an output, or performance basis versus an input basis, said Bryson. The EPA and the states are making progress on this, albeit slowly.

“The historical approach has said you can emit so much pollution per unit of input, in this case the fuel you burn. This approach fails to allow higher efficiency, a form of pollution prevention, to compete on an equal footing with ‘end of pipe’ controls and, thus, fails to recognize the efficiency benefits of CHP,” Bryson said. “The more efficient systems can be putting out the exact same kilowatt-hours of output using half as much fuel–but because they are using half as much fuel, they are only allowed half as much emissions, because emissions are based on fuel consumption.”

Keven Duggan, manager of environmental and regulatory issues for Chatsworth, Calif.-based Capstone Turbine, agrees that current regulations are a significant hurdle for larger CHP projects. Said Duggan, “I think these regulations are evolving–but they are not moving fast at all. So what we have on the books now in many states are regulations that were established 20 years ago. The structure of these old regulations are the numbers are now out of date and people are experiencing difficulties trying to get systems implemented–and so the books from which the regulators work from are not set up to meet or deal with these difficulties.”

States spearhead paradigm shift

While progress is slow, some states, along with EPA and DOE, are trying to lower regulatory hurdles to distributed generation and combined heat and power systems. Texas and California for example are developing regulations that credit the emissions savings associated with CHP.

“In Texas, they are saying when you calculate the emissions of a DG or CHP, you calculate the emissions of the technology and then you deduct the emissions for something like a boiler that you would have had to operate had you not implemented a cogeneration system. It’s a credit,” said Duggan. In California, the state gives a credit to companies for not using a boiler. “The overall standard is set, the credit is weighed in. If the standard is .5, and my cogen system emits .7, but I get a credit of .2 for not using a boiler, I meet the standard,” he said.

To help spearhead the necessary paradigm shift at the state level, a national group called the Regulatory Assistance Project (RAP) is being funded by Doe and managed by the National Renewable Energy Laboratory. RAP’s purpose is to create a model approach for how to deal with smaller distributed generation sources. Its goal is to establish guidelines and rules for states across the country to follow. State air and utility regulators and equipment manufacturers have participated in the RAP to design principals, concepts and approaches for states.

In addition, regional industry groups are aligned to make a case for CHP. In September, an alliance of environmental, industry, and government organizations formed a task force called the Midwest CHP Alliance to spearhead the installation of CHP systems throughout the Midwest. The Alliance plan is to double the amount of CHP in the region by 2010. The plan includes streamlining the permitting process, implementing interconnect and free access guidelines for states, educating pertinent policy makers and industry groups and developing a pro-CHP policy platform for legislative changes in Midwestern states.

“This article was written by Arthur Venables and Neil Kolwey, research managers at E Source, a part of Platts. It was originally published in E Source Corporate Energy Managers’ Consortium (CEMC) News. CEMC is a service provided by E Source to subscribing members and provides participating energy managers with analysis of new technologies, explanations of new energy procurement strategies, updates on performance contracting deals and up-to-the-minute intelligence. The service also includes reports, peer exchange, corporate benchmarking, a best practices database and other benefits for corporate energy managers. For more information on the E Source Corporate Energy Managers’ Consortium, please contact Pamela Milmoe of E Source at 720-548-5581 or pmilmoe@esource.com. Platts is the energy information and marketing services unit of The McGraw-Hill Companies.”